EY releases Overview of China outbound investment of H1 2022
China overall outward direct investment (ODI) reached US$68.8 billion in the first half (H1) of 2022, down 3.6% year-on-year (YOY), while non-financial ODI reached US$54.2 billion, up 0.6% YOY. The Belt and Road (B&R) non-financial ODI increased 4.7% YOY1, which continued to outperform the overall growth rate.To get more china business market news, you can visit shine news official website.
The announced value of China overseas mergers and acquisitions (M&As) reached US$16.1 billion, down 36% YOY. The China overseas M&As in the second quarter (Q2) got slightly warmer compared to Q1 2022 and the same period of last year. Deeper uncertainty in the global market, however, is likely to restrain the increase.
Sector-wise by deal value, the top three sectors were TMT*, advanced manufacturing & mobility, and health care & life sciences. Both the value and volume of mining and metals M&As recorded a substantial increase, up about 100% YOY, in H1 2022. Moreover, the consumer product sector recorded the lowest M&A value in a decade, down 81% YOY.
Asia was again the top overseas M&A destination during the period, recording the highest deal value and volume among all major continents. By deal value, half of the top 10 destinations were situated in Asia, namely South Korea, Singapore, India, Indonesia and the Philippines. During the period, Chinese investors became interested again in Australia despite the weaker global sentiments, with YOY increases in deal value (+115%) and volume (+140%), and the most popular mining and metals sector taking up more than 30% by deal volume.
Newly-signed China overseas engineering, procurement and construction (EPC) projects decreased 6.2% YOY to US$103.6 billion.
EY today releases the Overview of China outbound investment of H1 2022. The overview shows that China ODI was generally stable in H1 2022, and the B&R non-financial ODI increased 4.7% YOY, which continued to outperform the overall growth rate. The China overseas M&As in Q2 2022 got slightly warmer compared to Q1 2022 and the same period of last year. Asia was again the top overseas M&A destination during the period, recording the highest deal value and volume among all major continents2.
Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), says: “There is greater risk of slowing global economy. Chinese enterprises have found themselves in a progressively complex environment when investing overseas. Regional geopolitical tension continues to bring challenges to global economic momentum, including growing global energy and food prices, and sharply rising inflation rates in developed and emerging markets. Rapid interest rate hikes of some developed countries have resulted in some money outflows from emerging markets and a probably higher risk of macro-economic volatility. In addition, the pandemic resurgence in China has some effects on the economic growth and the profitability of enterprises. In addition to the national policies that encourage the internal circulation of capital in the country, Chinese enterprises may lean to caution over investing abroad in the short run. Nonetheless, overseas markets that have transformational potential are still attractive to Chinese enterprises. For example, in the new energy automotive sector, leading enterprises along the value chain have intensified overseas development in popular destinations in Europe, Latin America, ASEAN, etc. Looking ahead, greenfield investment by Chinese enterprises may provide fresh opportunities.”
Non-financial ODI develops steadily, especially in the real economy
China’s Ministry of Commerce (MOFCOM) statistics showed that the China overall ODI reached US$68.8 billion in H1 2022, down 3.6% YOY. China non-financial ODI reached US$54.2 billion, up 0.6% YOY. Investments in leasing and business services, wholesale & retail, manufacturing, construction, scientific research and technology services showed an upward trend. The B&R non-financial ODI reached US$10.0 billion, up 4.7% YOY which continued to outperform the overall growth rate. It represented 18.5% of the total, up 0.7 percentage points YOY. The investments were made mainly in ASEAN, Pakistan, the United Arab Emirates, Bangladesh, etc.
In H1 2022, the TMT industry was still the top overseas M&A sector for the Chinese enterprises, accounting for over one-third of the total. The largest overseas M&A deal was made by a Chinese enterprise acquisition of a Dutch leading enterprise of radio-frequency technology. The most popular mining and metals sector recorded a YOY double in both deal value and volume during the period. Despite the weaker economy, quality and strategic mineral resources remain attractive to Chinese enterprises. In addition, it is noted that the consumer product sector recorded the lowest M&A value in a decade, down 81% YOY. It was in line with a decrease of 0.7% in the total retail sales of consumer products in China in H1 2022. Caution over overseas investment was exercised in view of the weaker domestic consumption.
Newly-signed China overseas EPC projects decreased 6.2% YOY to US$103.6 billion in H1 2022. Examples were the tunneling project in the Saudi Arabian city of Madinah with a contract value of US$970 million, and the EPC general contracting services for the three-dam construction and water supply projects in Timor-Leste with a contract value of about US$630 million3. Overseas EPC turnover was US$70.6 billion, up 4% YOY. Value of newly-signed China EPC contracts in the B&R countries and regions reached US$52.2 billion, down 11.9% YOY, accounting for 50.4% of the total. Overseas EPC turnover in the B&R countries and regions was US$38.4 billion, down 2.4% YOY, accounting for 54.4% of the total.